Bargains May Steal Red Lobster's Lure

The Seafood Chain Is Fishing For Younger, Upscale Diners, But Its Deals May Appeal To Its Older Clientele.

December 30, 2000|By Jerry Jackson of The Sentinel Staff

When Red Lobster recently launched its nationwide "brand image building" campaign, it was following the lead of savvy marketers such as Nike and Coca-Cola. The "Go Overboard" TV campaign features hip, humorous and high-energy commercials crafted to appeal to families and baby boomers.

The idea, company officials said, was partly to get away from the chain's historic reliance on price-cutting promotions. Such deals squeeze profit margins and typically attract an older clientele -- the type of folks who already frequent the chain.

So why is the nation's largest casual-dining seafood chain about to launch a nationwide promotion dubbed "A Pound of Snow Crab for $10.99"?

Is the discount deal, scheduled to begin Jan. 15, a sign the Orlando-based company is backing away from its commitment to pure image building?

No, Red Lobster President Dick Rivera said through company spokesman Jim DeSimone. "We're totally committed," DeSimone said, to attracting a younger audience with the new style of brand advertising.

The company, he said, got a good deal on crab on the world market and is passing on some of the savings and moving the surplus seafood with an old-fashioned targeted campaign. The promotion ends Feb. 12.

"We're always looking for opportunistic buys" of perishable seafood, DeSimone said. The company bought far more crab than usual "at almost half the price per pound than we expected."

When that happens, he said, the company will resort to its conventional advertising. The company also will have its annual "Lobsterfest" promotion in the spring and "party platter" deals during holidays, DeSimone said. "So we will always have some of that kind of advertising in the mix."

Industry analysts said the full explanation is more complex than that. Red Lobster is likely to continue blending new and old advertising for some time, said Robert Derrington, an analyst who follows Red Lobster's Orlando-based parent, Darden Restaurants Inc., for SunTrust Equitable Securities.

"The key is, you can't alienate your base," Derrington said. "You slowly bring in new people and expand your clientele -- in this case they are looking for more families and yuppies and people with kids. But their clientele for some time has been skewed" toward retirees and older couples without children.

"This is no longer your family's Oldsmobile," Derrington said of Red Lobster, but the chain still has a nationwide following that responds to a bargain.

Oldsmobile's dilemma, in fact, is a fair analogy for the challenge facing Red Lobster, analysts said. Olds is expected to be phased out by General Motors during the next three years in part because the car maker was unable to attract enough younger buyers as its older customers literally died off.

Another analyst at a Wall Street brokerage agreed that Red Lobster has a delicate marketing task ahead. "They can drive traffic" with targeted promotions such as the Pound of Crab deal, but if they cut prices too often it will work against creating an upscale, youthful image.

"Nike doesn't advertise a deal on its shoes," said the analyst, who spoke on the condition of anonymity. "I think you'll see them [Red Lobster] stay away" from a lot of "price point" advertising.

Darden Chief Executive Officer Joe R. Lee and Red Lobster's Rivera have so far shown themselves capable of steering the company on a profitable path while other restaurant chains struggle.

Darden recently reported a record second-quarter profit of $29.5 million, or 24 cents a diluted share, up 33 percent from the same period a year ago. Revenue was up 10 percent to $932 million.

The flagship Red Lobster unit during the same period recorded its 12th straight quarter of same-restaurant sales increases, a key industry measure of health.

The second quarter was also the 15th consecutive quarter in which Darden earnings beat the consensus estimate of Wall Street analysts.